Question

Sales revenue for a sporting goods store amounted to $215,000 for the current period. All sales are on account and are subject to a sales tax of 7%. Which of the following would be included in the journal entry to record these sales?

- A debit to Sales revenue for $215,000
- A credit to Accounts receivable for $215,000
- A debit to Sales tax payable for $15,050
- A debit to Accounts receivable for $230,050

Answer 1

The correct journal entry to record sales with a sales tax includes debiting Accounts Receivable for the total amount after tax, crediting Sales Revenue for the actual sales amount, and crediting Sales Tax Payable for the sales tax amount.

Step-by-step explanation:

When recording sales revenue for a sporting goods store which amounted to $215,000 and is subject to a 7% sales tax, the correct journal entry would include multiple accounts to accurately reflect this transaction.

Firstly, you would calculate the sales tax by multiplying the sales revenue by the sales tax rate, which would be $215,000 x 0.07 = $15,050. This is the amount that is owed to the government for sales tax.

Now, for the journal entry:

1. Debit Accounts Receivable for the total amount including sales tax ($215,000 + $15,050 = $230,050).
2. Credit Sales Revenue for the amount before sales tax ($215,000).
3. Credit Sales Tax Payable for the amount of the sales tax ($15,050).

The correct journal entry therefore would include a debit to Accounts Receivable for $230,050, reflecting the total amount the customers owe, including sales tax. A credit to Sales Revenue for $215,000 shows the amount earned from sales excluding tax.

Lastly, a credit to Sales Tax Payable for $15,050 indicates the liability created from collecting sales tax on behalf of the government. Note that no entry is made to debit Sales Tax Payable as it reflects a liability, not an expense or asset.